Earning a passive income of $50,000 a year from the share market is entirely possible for regular investors.
There are a couple of ways to achieve this.
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How can you earn $50,000 a year from investing?
If you already have a significant nest egg, then investing your funds into shares with generous dividend yields is the quickest way to do this.
Telstra Corporation Ltd (ASX: TLS) or Westpac Banking Corp (ASX: WBC), for example, offer fully franked forward yields in the region of 5%.
This means that an investment of $1 million in their shares would generate $50,000 in dividends this year.
What if you don't have a million dollars?
Very few people will be lucky enough to have a million dollars to invest in the share market. But don't let that put you off.
If you have both time and patience, then earnings $50,000 each year from the share market is possible.
You can achieve this by investing in dividend-paying companies (or future dividend payers) that have the potential to grow strongly over the long term.
A prime example of this is biotechnology giant CSL Limited (ASX: CSL). Let's forget all the capital gains you would have earned over the last 27 years and focus purely on dividends.
When CSL shares landed on the ASX boards in 1994, investors could have picked them up for just 76 cents apiece.
According to a note out of UBS, it is expecting the company to pay shareholders a dividend of approximately $2.95 per share in FY 2021.
While this equates to a paltry 1.1% yield based on the current CSL share price, it represents a mammoth 388% yield on the price you would have paid for its shares in 1994.
That's right! For every dollar you invested into CSL shares in 1994, you would be receiving $3.88 back this year in dividends.
This means that an investment of just $12,000 into the company in 1994 would yield $50,000 in dividends in 2021.
What about the future?
Unfortunately, CSL shares are highly unlikely to repeat this feat over the next 27 years. However, if you look at the smaller side of the market, at shares with strong growth potential and equally strong business models, you might just identify the next success story.
On that note, companies such as Bigtincan Holdings Ltd (ASX: BTH), Damstra Holdings Ltd (ASX: DTC), and Doctor Care Anywhere Ltd (ASX: DOC) could be worth a closer look.
